The Reserve Bank of India's Deputy Governor Michael D Patra said on Friday that the RBI, drawing upon its experience with financial inclusion, crafted a pandemic response that reached out in the form of unconventional measures to those afflicted sections of society, keeping finance flowing, and financial institutions and markets functional, especially when personal incomes were lost and the future was highly uncertain. He noted that monetary policy maximises human welfare by minimising the deviations of output from its potential and inflation from the target. Although it is empirically observed that there is a two-way relationship between monetary policy and financial inclusion, it is unambiguous that financial inclusion is able to dampen inflation and output volatility. This is achieved by smoothing consumption by enabling people to draw down financial savings in difficult times for everyday needs. In the process, it makes people interest-sensitive. Financial inclusion fosters societal intolerance to inflation, a social preference for macroeconomic stability and a sense of the long and variable lags with which monetary policy operates. This makes it possible for smaller monetary policy actions to achieve the same goals in a shorter period of time than otherwise.
Powered by Capital Market - Live News
Disclaimer: No Business Standard Journalist was involved in creation of this content
